Miramax deal includes distribution agreement

The group led by construction executive Ronald Tutor and investment group Colony Capital is closing in on the acquisition of Miramax Films for more than $650 million, but final deal points and financing specifics were still being worked out Thursday.

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Those details appear to include an agreement for Disney to handle domestic distribution not just for the few unreleased Miramax movies but also for any new Miramax titles for at least its first year, after which the new company would have its own infrastructure. Tutor has been seeking an executive to run the new entity, which will be built from the ground up.

Although Wednesday was supposed to be the deadline to deliver a $40 million nonrefundable deposit to Disney, sources said the money wasn't delivered and won't be until due diligence is done. In addition to the $650 million, Disney is requesting a $25 million closing fee, making the total $675 million -- close to the $700 million the studio has been seeking since February.

To close, the buyers must tell Disney where all the equity and debt money will come from and when. Tutor, Colony and investor James Robinson of Morgan Creek -- which is expected to be involved in international distribution for the new Miramax -- will provide most of the equity, but there might be undisclosed minority investors.

What they don't invest as equity must be raised as debt from banks or third-party sources like hedge funds. In a normal transaction, that might be a hang-up. The amount of equity being put in will leave several hundred million dollars to be raised in debt, and that might be hard to support based on the library valuation and outstanding receivables.

A number of earlier potential buyers valued the 611-film library at $550 million-$600 million. When investor Ron Burkle, working with Bob and Harvey Weinstein, valued the property at $565 million, Disney rejected their offer.

However, in this case, it is anticipated that Colony and/or Tutor will provide assurances that lenders will be repaid. As a kicker, those supplying the debt might also get a share in the future appreciation of the assets in the case of a sale. Lenders also might require significant upfront fees that could add to the cost.

Colony and Tutor declined to explain their plans Thursday as they worked to finalize the deal.

After the deal is completed, the partners still will need to provide additional funding, or arrange a line of credit, to build the new Miramax and make at least some movies to drive sales of the library, from which the best titles have been sold around the world for several years to come.

The studio also will need staff and a rights management system to track sales and collect money due. That includes not just theatrical but also home video, pay TV, free TV and digital rights. Outstanding receivables are said to be more than $150 million, which is supposed to reduce the acquisition cost.